What is a 'Denomination'?

A dDenomination is a classification for the stated or face value of financial instruments including currency notes and coins, bonds and other fixed-income investments. The denomination can also be the base currency in a transaction or the currency in which a financial asset is quoted. This further classification helps clarify acceptable payment options in transactions.

BREAKING DOWN 'Denomination'

A denomination is a unit of value most commonly assigned to physical currency, such as coins and notes, and other financial instruments that maintain a set value, such as government-issued bonds. The value is often referred to as face value because it is noted on the front, or face, of the financial instrument.

Currency notes dispensed by most ATMs in the United States are only available in certain denominations, for example, $20 bills or $100 bills. In a trade transaction, an exporter based in Europe may invoice the buyer in U.S. dollars, making the transaction U.S. dollar-denominated. While most commodities were quoted in terms of the greenback, as of 2011, commodities such as crude oil could be quoted in other currency denominations, such as the euro.

Par Values as Denominations

The denomination of a bond is equal to the bond's par value, which is the amount paid upon maturity. Bonds can be purchased in a variety of denominations ranging from $50 to $10,000. When a bond is purchased, it is sold for an amount below the marked denomination because the difference between the sales price and the value at maturity serves a function similar to the interest earned in other investment vehicles.

The par value of a stock can also represent its denomination but may be an inaccurate assessment of the security's value within the marketplace. The par value represents a minimum value for the particular holding. To avoid certain legal liabilities, many stocks are listed with par values as low as 1 cent.

The Denomination of Collectible Currency

Certain pieces of currency have a higher retail market value than the associated denomination. For example, certain U.S. quarters produced between 1932 and 1964 were composed of 90% silver. Although the face value maintains the coins' worth at 25 cents, the market value may be higher based on the current price of silver, referred to as the melt value, as well as the condition of each coin and the date and mint involved. The difference between the denomination and the melt value ultimately led to a change in the materials used to produce a quarter.

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